Brewers and pubcos fear Afghanistan action will hit trade

Related tags Recession

Many of Britain's brewers and pub retailers fear the escalating military action in Afghanistan could have a profound effect on the entire trade.The...

Many of Britain's brewers and pub retailers fear the escalating military action in Afghanistan could have a profound effect on the entire trade.

The results may take time to filter through but company heads are already nervous.

Philip Bowman, the chief executive of Allied Domecq Spirits & Wine told a sunday newspaper: "During the Gulf War people stopped eating out to spend much more time at home. I think that is something that is going to stay for a while. Already there is a significant economic downturn in the world and this is clearly going to exacerbate it."

The company is currently in a closed period and Mr Bowman was not available for further comment.

It is thought the real impact will be to the on-trade. It is feared that many will substitute the experience of going out and stay away at home.

Tim Martin, chairman of pubs group JD Wetherspoon has said that he is worried and has already noticed softer trading, especially in the Capital.

According to Caroline Levy, UBS Warburg beverage analyst in New York, people will not want to go out, socialise or drink as much when such serious events are taking place around the world.

"This recession could be unlike most, because the consumer's mood is different," said Ms Levy, "Less travel, entertaining and a general malaise could continue to pressure on-premise demand and reduce the chance of an offsetting pick-up in off-trade consumption."

The general sentiment would not seem to bode well for licensees and landlords. A spokesman for Diageo said: "During times like this, and certainly what was seen during the Gulf War is that people tend to give the pubs and clubs a miss, but that does not stop them using our products at home."

Some observers believe the US-led military strikes against the Taliban in Afghanistan will ease economic uncertainty, while others say it will heighten it, affecting consumer confidence.

Several analysts say the fear of terrorism means that people are not drinking out.

Both Budweiser and Anheuser-Busch have been on the receiving end of negative broker comment. Shares in Anheuser fell last week after two analysts warned beer consumption would fall in the wake of the terrorist attacks in America on September 11. UBS Warburg estimated that the world's largest brewer suffered a five per cent decline in volumes in September.

In the three months before the attacks, it had seen a 2.1 per cent increase in domestic beer shipments, and expected a 1.5 per cent rise for the year. Both Deutsche Bank and UBS lowered their ratings. UBS estimated that earnings growth per share could halve from 15 per cent to seven.

Marc Greenberg of Deutsche Bank said: "Our industry sources now portray a less favourable volume outlook this year in addition to anticipated pricing softness."

The global downturn compounded by the recent attacks on America mean that the economy could be heading for a full-blown recession.

Some analysts are not so convinced. Greg Feehely from Old Mutual certainly does not subscribe to the doom and gloom but says people will probably drink at home rather, than in pubs. "We may see a transfer from the on-trade to the off, but it is important we do not talk ourselves into a recession.

"It would appear the action in the Middle-East is not going to be short-term. There may be some initial impact on trade, but I think people will soon get used to it and return to pubs and restaurants."

At last week's G7 summit in Washington, Eddie George, the governor of the Bank of England noted how resilient public spending had been and that September 11 has left British consumers relatively unfazed.

It is yet to be seen if this will remain in the light of ongoing action in Afghanistan.

Whatever unfolds before us in the Middle-East, the knock-effects are unquestionable. This week the majority of UK companies in the hospitality and leisure sector will be dusting off their statistics books from the Gulf War, as it is thought this will provide the clearest indication of what can be expected.

This autumn promises to be a testing time for the entire British trade. Many predict it will culminate in a survival of the fittest and a trimming of the fat.

Reportedly, the American people have seen it as their patriotic duty to get out and spend, in order to support their businesses, and perhaps, British consumers should be encouraged to do the same and keep spending.

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